Are Smartwatches Hurting Watch Sales?

Switzerland is having a down year. Is Apple to blame?

Credit the Federation of the Swiss Watch industry (FHS) for not trying to put a good face on December’s watch exports, or the year in general.

“Exports remain in decline,” the Federation said after they logged their sixth down month in a row. Overall, Swiss watch exports fell 3.3 percent in 2015. That’s not huge, but the trend for the second half has been consistently down, which doesn’t bode well for the first half of this one.

Groups like the FHS, as well as people in the watch business, tend to blame traditional factors for the decrease, like the downturn in the Asian economy, the upturn in the Swiss franc, and the strength of the U.S. dollar, which is hurting tourist sales here.

But the press, especially the tech press, tends to point the finger at smartwatches. “It’s not business as usual in Swisstown,” crowed one pro-Apple blogger. (Throwing people out of work is really not that cool.)

To be clear, correlation does not imply causation. But there might be something here.

For the sake of argument, let’s say that the wearables sector, and perhaps even the Apple Watch, have undershot expectations. The New York Timeswrote last week:

The technology research firm IDC once predicted that smartwatches would become a mainstream product by 2018.

“We recently revised our estimate because we don’t think it’s going to happen anymore,” said Jitesh Ubrani, the senior research analyst for mobile devices at IDC. “Basically, we don’t see this happening until at least 2019.”…

“A lot of consumers have tried out smartwatches, and they don’t see the need for them right now,” he said. “This is mainly because they only offer notifications for your smartphone. And more importantly, you’re paying the same price for a smartphone.”

As conventional wisdom has it, smartwatches lack a “killer app.” When I wore one, I barely found even a useful app, never mind a killer one, other than—ironically enough—telling time.

All that said, as, NPD Group’s Fred Levin told me, when breaking down June watch sales, it’s naive to think that smartwatches are having no effect:

We found there were 930,000 watches sold in June. By conservative estimates, several hundred thousand Apple Watches were sold that month. If you think about how even 200,000 or 300,000 units compares to 930,000, that is extremely material. It doesn’t take a rocket scientist to realize that some level of cannibalization has occurred. That is basic math.

In a long article on this subject, A Blog to Watch’s Ariel Adams argues that, if smartwatches are hurting sales, it’s mostly on the low end:

Smartwatches are finding homes on otherwise naked wrists, for the most part.… Few people are choosing to take off their $10,000 Rolex in favor of a smartwatch, but people with a $100 Swatch might. It takes a lot of passion, education, and culture (not to mention disposable income) to include luxury timepieces in your lifestyle. Just as the journey to discover your favorite luxury watches takes time, so does the opposite situation of deciding you no longer want them. People who start to wear luxury watches tend to stay wearers for a very long time.

That makes sense, too. This is very similar to the discussion of whether the movie Blood Diamond would affect consumer attitudes toward diamonds. Very few people, I figured, will want to throw their $3,000 ring down the drain. Most will simply rationalize and keep on wearing it.

Yet, let’s not be too complacent here. The profile of early adopters—upscale tech-obsessed men—overlaps with the demo that sports luxury watches. (Among the high-profile Apple Watch wearers: Nancy Pelosi and Jeb Bush, who apparently wears one without even knowing its features.) This week, LVMH announced that TAG Heuer had done well with its smartwatch, the Carerra Connected. CEO Jean-Claude Biver was reportedly surprised by that.

As my colleague Emili Vesilind writes, for now smartwatches are mostly popular with younger consumers (Bush and Pelosi excepted). Given that most young consumers are not big watch wearers anyway, some in the watch business have taken heart from that, arguing that these new devices will introduce them to the joy of watch wearing. Certainly my two weeks with one whet my appetite. Says NPD’s Levin: “Many young professionals don’t wear watches. If people who never thought about wearing a watch before are turned on to putting something on their wrist, that is positive.”

Of course, there is a flip side to this: Younger consumers may also decide that it’s foolish to spend thousands on a device that only tells time, when they have gotten used to devices that do so much more.

The Swiss industry, for the amazing mechanics behind its products, is best known for its design sense and marketing savvy. The tech business is great at making useful devices. But while Apple’s design sense has been justifiably hailed, many consider current smartwatches unattractive. (Even Apple’s.) At last year’s Consumer Electronics Show, Richline’s Mark Hanna said, “The one thing we see missing in wearable tech is anything for women, especially in the smartwatch category. It’s as if the wearable industry is only selling football jerseys for men.”

Which means that both sides may be missing out. TAG Heuer’s unexpected success with its smartwatch “does point to a potentially larger opportunity than expected for luxury watch makers to tap into the smartwatch space,” writes Motley Fool. So yes, there may be a market here, and the smartwatch revolution may be as much an opportunity as threat. The winners may be companies that combine the best of Silicon Valley with the best of Switzerland.